A mischievous
little study was released yesterday
, in which the Highway Loss Data Institute found that states that banned sending text messages while driving don't see a reduction in text-related accidents. "In fact," says the HLDI, "such bans are associated with a slight increase in the frequency of insurance claims filed under collision coverage for damage to vehicles in crashes." This is based on a review of collision claims in California, Louisiana, Minnesota, and Washington before and after those states passed texting bans.

It's surprising
how uncritically this study has been received
, especially since the HLDI is a consortium of insurers, who've long opposed driving-text bans. I cheered a little when Transportation Secretary Ray LaHood called the study
"completely misleading"
and cited some DoT pilot programs that show the opposite. And a few news stories pointed out that there's a big difference between passing a law and actually enforcing it.

Advertisement

But missing entirely is the fact that the baseline has changed dramatically! Think of it this way: Fifteen years ago, precisely zero car accidents were caused by texting, because no one in America was sending texts, inside a car or outside. Today, the volume of text messages is growing massively. Indeed, if you get all the way to the bottom of the HLDI release, you'll find this nugget: "Texting in general is on the increase. Wireless phone subscriptions numbered 286 million as of December 2009, up 47 percent from 194 million in June 2005. Text messaging is increasing, too. It went up by about 60 percent in 1 year alone, from 1 trillion messages in 2008 to 1.6 trillion in 2009. "

This is crucial. If text messaging is rising 60 percent every year, it stands to reason that the number of people texting and driving is also going up by some significant factor. And so if the states
hadn't
passed their texting bans, the number of text-related crashes might well have been higher. It's also important to keep in mind that any statistical studies on this subject have major limitations at the data-collection level. As this
National Highway Traffic Safety Administration
report puts it, "Police accident reports vary across jurisdictions, thus creating potential inconsistencies in reporting. Many variables on the police crash report are concrete across the jurisdictions, but distraction is not one of those variables."

I'm still drying my eyes over the plight of literary fiction writers, as depicted in a
page-one
Wall Street Journal
story this morning
. The story claims that "the digital revolution that is disrupting the economic model of the book industry is having an outsize impact on the careers of literary writers." Whereas once a literary fiction writer might get an advance of $50,000 or $100,000 or more, now, thanks to the increasing popularity and lower price of e-books, these authors are either getting rejected or having to settle for advances in the low four figures.

This story has more holes in it than Albert Hall. It offers absolutely no evidence that literary fiction writers are more affected by this phenomenon than, say, commercial fiction writers, nonfiction writers, science and technical writers, or anyone. It also assumes that the e-reader phenomenon is responsible for the trend, whereas it wouldn't be that hard to find people who could tell you that advances were declining well before e-readers had much of an impact.

Advertisement

But most frustrating: It fails to account for a simple marketplace fact. If, as the article demonstrates, a digital version of a book sells for less than half the price of the same book in hardcover, it should be possible to sell a lot more copies of the digital book. Another way of saying this is that the size of the advance need not be the end of the story. As the
Journal
correctly notes: "To secure the rights to publish and distribute a book, publishers pay authors advances against future book sales. After the book is published, the author earns a royalty that is initially applied to the advance. Once the author recoups the advance, he earns a percentage of every book sale."

But the
Journal
fails to mention two critical things. Based on this formula, an author who gets a lower advance—say, $1,000—will begin to earn royalties after selling a fairly modest number of books, whereas those receiving larger advances may never earn royalties at all. (The
industry rule of thumb
is that nine out of 10 books will not earn back their advance.)

Second, the typical book contract also pays a higher royalty rate based on higher copy sales. So, for example, an author might receive a 10 percent royalty rate on the first 10,000 copies sold, a 12.5 percent rate on all copies between 10,000 and 15,000, and 15 percent after that. Therefore, selling e-books at a lower price may not be quite the raw deal that the
Journal
makes out.

That's not to say that the typical literary fiction writer is going to sell enough copies in any format to get back to that prized $50,000 advance. You can be pretty certain, though, that if publishers (including the

Journal

's parent company, which also owns HarperCollins) aren't shelling out that kind of money on an unproven novelist these days, it's because they know damn well that they're not going to get their money back. I feel genuinely sorry for literary writers who are upset by that fact and who have to find other ways to pay for their health care, etc. But the truth is that no more than a few dozen literary writers in any generation have ever been able to support a family based solely on their writing. E-books did not create that problem.

The simplistic but enduring version of the Republican or libertarian economic worldview tends to evoke thinkers whose best work was done in the early-to-mid-20
th
century—like
F.A. Hayek
and
Ayn Rand
. That was also a time when the distinction between the public (libertarians say BAD!) and private (libertarians say GOOD!) economy was a line that would be clear to most people with a junior-high-school education.

How, though, does anyone today draw that line? Consider
this story in Tuesday's
New York Times
: The state of South Carolina has decided to start its own company to oversee how the state pension fund invests its money. The difficulty in recent years, you see, has been that what we commonly understand as "private equity" and "venture capital" funds—the cutting edge of the nonpublic economic sector—often gets all or most of its capital from public entities like state pension funds (with South Carolina's being by no means the largest). So: Taxpayer money gets invested into private firms, by private firms, expected to produce an outsized return that benefits all.

Advertisement

But lately that model has failed. Why? Well, there's the overall implosion of the economy. But viewed more closely, it looks like the risk-taking, Ayn Randian financiers found a little detour in the road away from serfdom: Knowing they were going to lose money in their investments, they decided to lock in revenue by charging oversized fees. That makes them look an awful lot like
rent seekers
, a species that libertarians tend to associate with the state. South Carolina is now breaking away from the mad shackles of the private sector and stepping out on its own—fees be damned. A blow for freedom! Freedom for, um, the state!

So, to put it in simple terms: The state now has to create a taxpayer-funded entity that will use private-sector criteria to second-guess the private sector venture capitalists—who use state money to make their investments—because of their failure to live up to market standards, and their lapse into nonproductive economic behavior associated with the state. Got that, Mr. Hayek?

This week, Steven Rattner is in overdrive promoting
Overhaul
, his account of the Obama administration's auto task force. If you're expecting a bookful of bombshells like Rahm Emanuel's widely quoted profanity toward the United Auto Workers, don't bother. Rattner's book is a thoughtful, reasonably honest, and compelling story about how government reacts to economic crisis. For a general view of the issues discussed in the book, read
Jonathan Cohn's
New Republic
interview
. I asked Rattner instead about a few areas that are unsettled.

One is cash-for-clunkers, whereby the government paid car dealers between $3,500 and $4,500 for every less-fuel-efficient vehicle that was traded in for a newer, more-fuel-efficient one. Rattner's book makes it clear that cash-for-clunkers was inserted into a March 2009 presidential speech in an all-nighter atmosphere. A meeting with members of Congress had left economics adviser Larry Summers convinced that while the original plan did a good job of restructuring the shattered hulls of Chrysler and GM (including firing GM's CEO), it didn't do enough to stimulate consumer demand, which was needed to reverse one of the worst slumps in car-buying in history. And so they banged out some late-night language to put into the president's speech. Once the program kicked in that summer, Rattner labels it "an extraordinary success, far beyond anything we had imagined ... an all too rare example of what can happen when a smart and energetic staffer [Brian Deese] develops a good idea and runs with it."

Advertisement

A year later, this seems like a difficult position to defend. Using a detailed comparison of car sales in cities that had high percentages versus low percentages of clunkers,
this study
determined that approximately 360,000 cars were bought in the July-August 2009 period that would not otherwise have been bought. But they were almost all pulled from the very near future; by the end of March 2010, the total purchase in high-clunker cities since July were the same as those in low-clunker cities. So, the study concludes, the "relative impact on high clunker cities was almost completely reversed in just seven months."

Rattner is generally aware of this argument. His response? Pulling sales from the future is "what stimulus is all about." He acknowledges that cars sales "are not as rosy as I would have liked, but they're well up from their depressed levels of 2008 and 2009." Hmmm—that's setting the bar pretty low. August's new car sales were not only lower than July's, they were the
worst August in 28 years
. I don't want to make too big a deal about cash-for-clunkers; the entire expenditure was $2.85 billion, so even if every penny was wasted, it's still a fraction of, say, what went down the AIG sinkhole. But I'd be more confident if Rattner and the administration said they were studying cash-for-clunkers and figuring out how to make such consumer stimulus more effective, instead of just issuing a blanket thumbs-up.

A second area is industrial policy. Rattner's book is an extraordinary account of how government, brandishing the stick of bankruptcy, was able in a few months to accomplish tremendous restructuring of a major American industry in ways that had eluded the private sector for half a century or more. (His material on GM's clueless management is truly priceless.) Chief among these, Rattner said, was "a labor contract that allows the car companies to be profitable, and cleaning up their balance sheets." Isn't that an argument for America to practice industrial policy in non-crisis periods? Between the financial and auto sectors, and the normal disguised industrial policy we do with military contractors, that's a huge chunk of the American economy. Couldn't we have more regular and effective results if major industries regularly had supervision, loan availability, labor arbitration, etc. from the federal government, as so many developed countries do?

Rattner was having none of this. "Our mandate was to have as light a footprint as possible," he said. "It was the opposite of Vietnam: Get in, get out." In addition, he said, "there's always a de facto industrial policy, because of tax policy. By definition, there's no such thing as not having an industrial policy." Couldn't agree more; maybe if it were explicit and more consistent, as opposed to crisis intervention, it might reassure markets and put constant pressure on management for better results. Of course, if they're already calling Obama a socialist, imagine what they'd say if an American president proposed the kind of radical management of big business
those scary Canadians have
.

Suddenly, no Summers.
I was out on a research mission Wednesday, so the estimable Mike Konczal weighed in on the
imminent departure of Larry Summers
from the Obama administration. He focused on Summers' motivations for leaving, all of which are well laid out. But here's another question: Does anyone think it will make that big of a difference? It's well established that
the left loathes Summers
, blaming him for much of what has and hasn't happened with Obama so far. And obviously much depends on who replaces him. I have this strong sense, though, that if Summers didn't exist, the administration would have to invent him—and that his influence will continue to be felt even where his name is no longer on a desk plate.

This gives "network sweeps" a whole new meaning.
Zucker gone
,
Klein gone
.
Both seemed inevitable, if not overdue. In NBC's case, the new owner obviously wanted to be able to pick its own person—one lumbering industrial giant (Comcast) replaces another (GE). At CNN, though, there's probably more of an opportunity for Ken Jautz to make an impact, and faster, too. There's a little more schedule flexibility, and any improvement in the numbers will make a real difference, whereas turning around NBC's prime-time ratings seems like a multiyear task.

Of all the political topics drowning in spin and obfuscation, nothing can beat the combination of tax policy and small business. Republican or Democrat, legislator or executive, any American politician who has an opportunity to pander to small business will grab it, eagerly tossing facts aside as necessary.

The American imagination fetishizes small business, as part of the mythology of individual enterprise; we revere the mom-and-pop grocery store and the plucky Internet startup. Mythology has its uses, but let's also try some truth: Most entities in this country that are categorized as small businesses don't look anything like the icons. A large portion are simply freelancers; when real companies lay people off, many workers become "small businesses." Another chunk are companies that exist only on paper as a way to pass income from one entity to another. Even the Small Business Administration, which exists in part to advocate on behalf of "small businesses," acknowledges that about
80 percent of so-called small businesses in America have zero employees
.

Advertisement

And thus emerges the peculiar fact that many of the very, very wealthiest Americans report a sizable portion of their income in the same category as small businesses. In 2007, according to
Internal Revenue Service data
(see Table 1, Page 4), of the 400 tax returns showing the largest adjusted gross income, a little more than half reported making money through S corporations and partnerships, the category that also includes many small businesses. On average, these high-fliers reported earning more than $83 million in this type of income—which, of course, makes them much, much larger than what most people think of when they think of a "small business." Such a distortion—overall, this is $16.8 billion in income from only 202 taxpayers—is at the heart of much of our shouting about taxing small businesses.

Now, I'm not suggesting that these ultra-wealthy folks are doing anything wrong; they're presumably taking advantage of whatever tax rules they can. After all, partnerships and S corporations are very commonly used by people who make scads of money—as a way, for example, that Wall Street executives invest large bonuses, or that people buy real estate as a group. (Indeed, almost as many of the top 400 tax returns showed
losses
through these types of entities, though the losses were on average much smaller.)

No, the problem here is with a tax code that views as equivalent a struggling 100-employee business and a zero-employee "business" that only further boosts a billionaire's wealth. This is why the debate over whether the top rate of taxing this kind of income should be 35 percent or 39.6 percent or something else is rancorous but practically meaningless. If we're ever going to have an honest and effective debate about the right level at which true small businesses should be taxed, we need to have a better way of separating out the vast differences between the entities that get treated as small businesses.

Robert Reich's new book
Aftershock
should appeal to those who enjoyed Timothy Noah's splendid
Slate
series on inequality
. The remedies that Reich offers in his conclusions are mostly familiar choices from the liberal menu—including higher marginal tax rates on the wealthy, and Medicare for all—but one jumped out as novel. Reich argues that the fear of not being able to afford sky-high college costs keeps many students today from post-secondary education. So he proposes that no one who attends college or university in America should have to pay anything upfront for tuition. Those attending private institutions could take out federal loans, and tuition at state institutions would be free.

Graduates would then be required to give 10 percent of their salaries—Reich acknowledges that the number is an estimate—back to their school for the first 10 years of full-time employment. After that, any loans would be forgiven. In effect, those who leave college for financial or other well-paying careers would subsidize the education of those who pursue socially useful but lower-paying areas like teaching or social work.

No, the real culprit is living costs, both the traditional "room and board," plus on many campuses the price of maintaining a car; fees to fraternities or sororities; ski trips and study abroad; etc. "Those costs are open-ended," Hacker explained in an interview, and thus there would be no practical way to include them in the scheme that Reich describes.

These are significant roadblocks to a graduate-tax system, and there are others. Still: That $7,000 average means that many students have much higher costs; at
some Penn State campuses
, the current annual tuition fees are more than $14,000. I don't expect that Reich's proposal will become federal policy any time soon; it would be instructive, though, to see an experiment on a state level.

I already blame Elizabeth Warren for everything.
I'm pretty sure she wrecked the economy while simultaneously causing
the tornado in Brooklyn
. I'm joking, of course. I have tons of respect for Warren and have no doubt she could do a great job with the consumer agency she's sort of going to be heading, or advising, or whatever it ends up being. But somehow Warren's quasi-appointment mushroomed into the most overdetermined, symbolically loaded political gesture of the year. Among those whom the
White House press secretary called the professional left
, Warren's appointment became not only a vengeful repository of anger and frustration aimed at an Obama economic team that doesn't represent a sufficient departure from the Fed-Wall Street axis, but an outright line in the sand: If you don't support Warren's appointment, you're a traitor. (Again, I'll be happy if Warren gets the gig, but would
Gene Kimmelman
really be that bad?) On the other side, Warren became some kind of bank-scaring witch, an even more absurd caricature. I am wary of proxy wars and fear that the expectations for Warren and the consumer agency have been set way too high.

Advertisement

Sympathy for the Dimon.
With 15 years or so of Web browsing under our belts, it can be easy to forget just how spectacularly wrong things can go with a financial site, and this week JPMorgan Chase brought back
unpleasant reminders of e-commerce gone awry
. (Truth is, American Express had problems like this for years and has only recently ironed them out.) The age of Twitter amplifies such screw-ups immensely, and financial institutions have been extremely slow to adapt to social media. They might argue that
regulation makes it harder for them
, and one could add that they've had
bigger problems to tackle
. But somehow I suspect that JPM Chase is suddenly going to be putting some resources into Twitter.

Oh yeah, China's really afraid now.
The administration has
successfully conveyed the notion that it's very, very mad at China
, and if China doesn't revalue its currency by the time Timothy Geithner counts to three, then something really bad is going to happen. (You can, though, search
Geithner's prepared testimony
this week for the phrase "currency manipulation" and come up empty.) I'm not saying Geithner hasn't made a good case, but I'm still scratching my head over two points: A) What's different now, aside from the passage of time, from the earlier roars that the administration made about China and then retreated from? B) What is the administration actually prepared to do if,
as should be expected, China just shrugs off the attacks?
On A), it could be as simple as the imminent election. On B) ...

One of the most persistent and vexing political memes of recent weeks is the notion that our current unemployment crisis is caused by "uncertainty." Businesses are terribly confused, you see, by taxes and health care costs, so they're too scared to hire anyone. You get this argument from
straight-up Republican outfits like the Freedom Project
; from
Tea Partiers
(who, whatever else their virtues might be, do represent how some small-business owners think); and even in
somewhat sophisticated form
from the former Republican economic advisers who occupied most of yesterday's
Wall Street Journal
opinion page.

You may have noticed, though, that this uncertainty principle gets applied to only Democratic presidents and legislatures, who apparently possess unique bamboozling powers. That's striking, because if you look at the tax policies of most Republican leaders in recent memory, they weren't exactly pillars of certainty. As
Jeanne Sahadi reminded us last week
, Ronald Reagan spoke tirelessly about the need for personal tax cuts. But once they were implemented in 1981, the budgetary shortfalls they created caused his administration to enact the highest tax hikes America had ever seen in peacetime, "through 'base broadening'—that is, reducing various federal tax breaks and closing tax loopholes. For instance, more asset sales became taxable and tax-advantaged contributions and benefits under pension plans were further limited." Those seeking more detail can look
here
.

There are two main problems with the uncertainty canard. One is logical. Yes, of course businesses need to plan years ahead, but honestly: Coming up with scenarios based on different possible political outcomes is not that difficult a task. In such scenario-building, uncertainty is a two-way street. Someone's plan to cut taxes—or someone's plan to do nothing about the
skyrocketing health care costs of the last two decades
—introduces just as much uncertainty into the equation as a proposed tax hike. "Uncertainty" is not what these business actually despise; as always, a higher tax rate is, and uncertainty is a faddish way of expressing that.

The second problem is political: If you genuinely believe that American businesses use taxation as the chief factor in hiring and investment decisions, then you must resign yourself to a lifetime of uncertainty. Our political system is so swayed by whining about taxation that it forces politicians of all stripes to make public pronouncements, from appeasement to outright lies, that simply cannot be used as a reliable guide to what will happen with taxes. Most American businesses are smart enough to know that; it's mostly politicians complaining about uncertainty.

The release this morning of
income and poverty data
from the Census Bureau was not pretty: "There were 43.6 million people in poverty in 2009, up from 39.8 million in 2008—the third consecutive annual increase." The poverty rate itself in 2009 was 14.3 percent, up from 13.2 percent in 2008. I recognize that this provides zero comfort to actual poor people, but many folks who watch these things closely had expected the rate to go higher.
These two economists
, for example, had expected a rise of between 1.5 and 3 percentage points. Of course, the chances are good that poverty will rise again in 2010, so they'll get another shot at this grisly guessing game.

There's all sorts of criticisms of the poverty rate, mostly about the things it doesn't measure (plus
this oddity
: "It accounts for family size in an odd way, so that, for example, the second child in a two parent family raises the thresholds much more than either the first child or the third."). Starting next year, the government is going to begin issuing a "supplemental" measure that's supposed to provide a fuller picture of how poverty really affects people. (Some details are in this
PDF
.) The number that stuck out for me, though, was a much less-contested figure, median household income; at $49,777, it's down slightly from 2008, which itself was down from 2007. The
New York Times
got
the money quote from Harvard's Lawrence Katz
:

Advertisement

"The decline in incomes in 2008 had been greater than expected and when the two recession years are considered together, the fall since 2007 is 4.2 percent, said Lawrence Katz, an economist at
Harvard University
. Gains achieved earlier in the decade were wiped out, and median family incomes in 2009 were 5 percent lower than in 1999.

'This is the first time in memory that an entire decade has produced essentially no economic growth for the typical American household,' Mr. Katz said."